Troy Senik: Time for consumer-driven college

It is a peculiar problem of prosperous societies that one generation's luxury can quickly become the next's entitlement. Such is the case with higher education. In 1940, 5 percent of Americans had a college degree. Today, that number is six times greater – and still far too small for the taste of many politicians. Foremost among them is President Obama, who has called in the past for “every American to commit to at least one year or more of higher education or career training.”

It's that sentiment – that higher education should be a near-universal aspiration – that drives a relentless crusade by the political class both to encourage college attendance and reduce college costs. Those goals, it should be noted, work, to some extent, at cross-purposes. The more that college educations are in demand, after all, the more that universities can get away with charging in tuition. The difficulties go much deeper, however, than simple questions of supply and demand.

The nation is in the midst of a crisis when it comes to financing higher education, a trend so severe that it's now being referred to in some circles as a “college bubble.” As recently noted by Ivan Kenneally in the Washington Times, “Cumulative student-loan debt now tops $1 trillion, with the rates of default rapidly rising. While the average individual debt load for a 2011 graduate was approximately $23,300, current collegians are more ambitious than their predecessors, piling on about $10,476 per year. If crushing financial liability was itself an academic credential, we would be celebrating the smartest generation of scholars America has ever seen.”

The problem, of course, is that there is no such celebration going on. In a survey conducted by Accenture earlier this year, 41 percent of recent college graduates said they were underemployed and working in jobs for which their degrees were superfluous. To be sure, college graduates still fare better in the job market than their uncredentialed peers, and their dismal prospects for work owe, in part, to wider weaknesses in the economy.

Even in a stronger market, however, we'd still have to reexamine the value proposition of college given the exploding costs associated with the endeavor. From 1985-2012 – a period in which the consumer price index, a standard measure of inflation, rose by 115 percent – the cost of college education increased nearly 500 percent.

Public policy, to the extent it has been responsive to this problem, has been unimpressive. Congress and the president have recently been patting themselves on the back for staving off a doubling of interest rates on federal college loans. As a result, students this fall will pay a 3.9 percent interest rate – an increase from the 3.4 percent that held until the beginning of July, but substantially cheaper than the 6.8 percent rate that would have come into effect without a congressional fix. A relief? Yes, but a marginal one. Shaving a few points off of interest rates is relatively cold comfort when the principal is expanding at such a dizzying pace.

To arrest that inflationary spiral, of course, we'd have to know what's causing it. Part of the problem surely is government assistance itself. When government provides aid for students who can't afford a college education it creates an unmistakable incentive for universities – to keep tuition prices high enough to continue the hardship – and ensure the continued stream of government money that comes with it. As former Secretary of Education Bill Bennett first noted more than 25 years ago, federal aid – by insulating students from the true costs of their education and thus increasing demand – puts upward pressure on prices. That increase, in turn, creates more political pressure to boost aid, triggering a vicious cycle that sends prices into the stratosphere.

Another salient factor is the explosion of university expenditures that have little or no bearing on the classroom experience. This problem is particularly acute when it comes to administrative staff, whose ranks have skyrocketed in recent years. From 2001-11, the number of new administrative hires in higher education increased 50 percent faster than the hiring of teachers according to the U.S. Department of Education. By 2009, the University of California system actually had more bureaucrats than instructors: 8,822 to 8,669, respectively.

Not that the situation is utterly hopeless. There are a few beacons of hope, such as Indiana's Purdue University, where former Hoosier State Gov. Mitch Daniels has brought the same penchant for thrift that was his hallmark in the statehouse to academia. Upon taking the job, Daniels cut his own pay from $555,000 a year to $420,000, then proceeded to announce a two-year tuition freeze to be financed through $40 million in budget cuts and new revenue (a total that amounts to about 2 percent of the university's nonresearch budget). Daniels justified the efforts to Inside Higher Ed by noting, “It will fasten everyone's attention on the student. … For too long, we've done what the institution wanted and then sent a bill.”

That consumer-driven mindset has also taken root in Texas and Florida, where both governor's are pushing their state universities to begin offering a $10,000 bachelor's degree. It's also happening organically at Georgia Tech, which has recently rolled out plans for a three-year, online master's degree in computer science that will cost less than $7,000. These tiny pockets of higher education seem to be awakening to a fact that every other business in America can't afford to ignore: Their customers’ time and money is valuable.

What remains to be seen is whether ameliorative efforts like those at Purdue and Georgia Tech are the future of higher education or simply way stations on the road to a dramatically reshaped collegiate landscape. The rising generation of incoming freshmen is the product of an economy in which technology fueled massive disruption to hidebound economic models. They download individual songs instead of buying full albums on CD. They stream movies on Netflix rather than buying DVDs. They've watched the very idea of a bookstore become an anachronism. Given the choice between convenience and tradition, they'll take the former every time.

Would it be a surprise if this generation (or, even more so, the one that follows it), doesn't cotton to the top-down traditions of an academic establishment that has largely been insulated from the rigors of competition? Why keep a set schedule at a university that you have to live at or commute to when you can watch lectures online and only turn up for the occasional task that requires in-person interaction? Why sink a king's ransom into tuition costs when you can get an online master's degree from a prestigious university with less debt than it would take to finance a used car? Why blindly accept the four-year paradigm for bachelor's degrees when you could work at your own pace (either faster or slower) and begin developing work experience sooner? These are the questions more students will be asking as they realize that universities should exist to meet their needs, instead of vice versa.

Whether – or, at least, when – technology and the market will provide viable answers to these queries remains an open question. But there are already signs that the center cannot hold. That fact alone should make the gatekeepers of the educational status quo nervous. They've built a system that is too expensive, too time-consuming and too inefficient. Their window for reform it is rapidly closing. If they don't take that opportunity, they may soon find themselves the relics of a bygone age.

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